May a seller utilize seller financing and still qualify for Sec. 1031 deferral?
If a taxpayer agrees to provide seller financing for the sale of the relinquished property, he/she may not be able to complete an exchange. Since the seller must collect and spend the proceeds on replacement property within 180 days, then a long term payout on the note will not work. However, if the seller financing will be paid off in time for the taxpayer to use the proceeds to purchase replacement property within 180 days, then seller financing may be an option. In such cases, it is important for the promissory note to be made payable directly to the intermediary rather than the taxpayer. If the note is made payable to the taxpayer, he/she will be in constructive possession and control of the proceeds and the exchange will fail.
